The invention discloses a cascade energy storage system and method for improving power quality of a power grid. The system comprises distributed energy storage units, a low-voltage module group and ahigh-voltage module group, wherein the low-voltage module group comprises a plurality of cascaded H-bridge circuits; the low-voltage module group is connected to a low-voltage alternating current busthrough a filter; the high-voltage module group comprises a plurality of the cascaded H-bridge circuits; the high-voltage module group is connected in parallel between a low-voltage bus and a high-voltage bus through the filter; each distributed energy storage unit is connected to the low-voltage module group or the high-voltage module group through one of the H-bridge circuits; and each distributed energy storage unit is connected to the corresponding module group through the H-bridge circuit to form a three-phase independent structure. Through the cascade H-bridge series structure, the energy storage system can be directly connected to the medium-voltage or even high-voltage power grid without isolation of a transformer, and the voltage of the direct-current side of CHB connected to theenergy storage system does not need to be very high, and thus the flexibility and reliability of the operation of the energy storage system are improved.